Trying times for Bradford & Bingley

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by Lin Freestone

Bradford & Bingley, the UK’s biggest mortgage lender to landlords and the eighth largest bank in the country, is facing a difficult week.

The news over the weekend that the chief executive, Stephen Crawshaw, is stepping down for health reasons just prior to an expected profit warning, has been augmented by the revelation that a US private equity group is to take a 20% stake in the company.

US investor Texas Pacific Group will inject approximately £150m of funds into Bradford & Bingley. It is anticipated that a further £250m is expected to be raised by the bank from existing stakeholders in a rights issue.

The buy-to-let market in the UK is worth approximately £120bn. Bradford & Bingley has about one-fifth of this market. The bank’s profits have been affected by a rise in the number of its borrowers experiencing difficulties making repayments on mortgages.

In addition, a narrowing of the gap between the interest rate B&B pays for funds and the rate it receives from borrowers has placed extra pressure on profits. When the bank issues its profit warning later today, the £250m of profits forecast for this year is expected to be nearer £150m.